National Beverage Corp.
Annual Report 2016

Plain-text annual report

2016 Annual Report Shareholder Value Indeterminable $2176 $1040 $890 FY2014 FY2015 (in millions) FY2016 Carting Stats Metric Cylinder C A S E V O L U M E 13.2 11.5 10.1 16% $93 $100 $74 $64 $105 $100 $87 $75 10 2 50 0 FY2014 FY2015 FY2016 50 0 FY2014 FY2015 FY2016 FY2014 FY2015 FY2016 Operating Margin (in total percentage) Operating Profit (in millions) EBITDA* (in millions) *EBITDA chart utilizes a non-GAAP measure SUCCESS HAS A FRAMEWORK BEGINS WITH . . . “With every package of Healthy Innocent LaCroix and Shasta Sparkling SDA (soft drink alternative) that is sold, we are accelerating the evolution – the transformation from once-upon-a-time acceptable – to today, technically great and smarter!” Someone will feature a story in the future that portrays a beautiful can of sparkling water with the word Innocent printed on it, a Tesla electric car and a Smartphone with a Health App . . . ‘The Beginning’ the story will read! Inevitable . . . sure thing!! These last few years have witnessed a broad, startlingly chaotic transformation in our society, our planet, our lives and our Company. Yesteryear, if someone was opposing an acceptable trend, they were stuck-in-the-mud or a radical. Today, they are Gen Z or Millennials and different is praised and applauded for the courage provoking the change. National Beverage deserves a tremendous amount of praise . . . not because I think so, but because consumers, retailers and investors say so! Why? . . . for the vision to accept the changing world and, far more importantly, to embrace the challenges and do something about them! Just recently, a major retailer selected brand LaCroix as its class partner due to its outstanding performance; and that same week our common stock reached a record high. greater focus on our leadership role in the sparkling water category. pop days. That’s what we anticipate . . . Today, our Company is an enterprising innovator, leaving the traditional superhighway behind. Our new course, our new pathway is called . . . ‘Inevitable’ and our vehicle’s name – ‘Exponential!’ At destiny’s resting place, we will have clearly resolved the magic of our mission . . . ‘Indeterminable Value!’ FY2016 was indeed our ‘Breakout Year’ relative to innovation, creativity and financial results. Fundamentally, the financials speak for themselves. More important than the numbers, were the ‘hard’ decisions relative to strengthening the resolve and tweaking the focus on execution changes affecting the marketing and selling of sparkling water. A very significant marketing strategy was employed with a Harnessing the team to the ‘LaCroix Effect’ and introducing the first clean label in the industry, Shasta Sparkling SDA (soft drink alternative), while expanding the use of BrandED and its consumer data intelligence, were all key in those ‘hard’ decisions. We are blessed in many ways. We are also a highly determined, keenly aggressive, smartly led team that will not allow anything to stand between us and our charge. Our ultimate greatness is helping to make our America kinder, healthier and respected for its greatness! So, what are we anticipating . . . . . . an evolution, a revolutionary perfect scenario where the health/fitness population demands choices or they As a major part of fiscal resolution, America will demand of its citizens healthier lifestyles and this will involve goals and incentives to save and lower health care costs. This will work because debt-ridden America will not. This will work because it has to! The alternative is more than unhealthy. We, National Beverage, are perfectly ready and more – our assets, our brands and our philosophy are a fit with helping to make America healthier. Momentum will increase as exponential growth magnifies, initiated by the replacement of unhealthy choices with healthier options. Retailers will devote space to healthier products and a dynamic period will occur just like the beginning of the soda At present, we are in August and our first quarter has concluded – so we are anticipating spectacular results! Additionally, we want the momentum on all fronts to continue; innovation, creativity, sales and distribution to intensify; team harmony and courage to stand up to the challenges that an industry leader must confront; but, most notably . . . never, never focus on what others in our industry are doing. Instead, remain as vigilant on the space – the difference between us and the competition. If that space or difference gets bigger, we are doing the right things. If that space tightens, we must work to regain it – at whatever will not continue to purchase! the cost! We are Team National and our passion, agility and innovation will magnetize us to this leadership place – and here we will stay! So, side-by-side with you, our shareholder, our teammate and our friend, let us continue to feel grateful for our good fortune. Our fiscal first quarter will redefine the caliber of our determined focus! Joy, peace and goodness is on our minds and in our hearts. Drink Healthy, Think Healthy and Be Healthy and just maybe – a great habit is born! “With every package of Healthy Innocent LaCroix and Shasta Sparkling SDA (soft drink alternative) that is sold, we are accelerating the evolution – the transformation from once-upon-a-time acceptable – to today, technically great and smarter!” Someone will feature a story in the future that portrays a beautiful can of sparkling water with the word Innocent printed on it, a Tesla electric car and a Smartphone with a Health App . . . ‘The Beginning’ the story will read! Inevitable . . . sure thing!! These last few years have witnessed a broad, startlingly chaotic transformation in our society, our planet, our lives and our Company. Yesteryear, if someone was opposing an acceptable trend, they were stuck-in-the-mud or a radical. Today, they are Gen Z or Millennials and different is praised and applauded for the courage provoking the change. National Beverage deserves a tremendous amount of praise . . . not because I think so, but because consumers, retailers and investors say so! Why? . . . for the vision to accept the changing world and, far more importantly, to embrace the challenges and do something about them! Just recently, a major retailer selected brand LaCroix as its class partner due to its outstanding performance; and that same week our common stock reached a record high. Today, our Company is an enterprising innovator, leaving the traditional superhighway behind. Our new course, our new pathway is called . . . ‘Inevitable’ and our vehicle’s name – ‘Exponential!’ At destiny’s resting place, we will have clearly resolved the magic of our mission . . . ‘Indeterminable Value!’ FY2016 was indeed our ‘Breakout Year’ relative to innovation, creativity and financial results. Fundamentally, the financials speak for themselves. More important than the numbers, were the ‘hard’ decisions relative to strengthening the resolve and tweaking the focus on execution changes affecting the marketing and selling of sparkling water. A very significant marketing strategy was employed with a greater focus on our leadership role in the sparkling water category. pop days. That’s what we anticipate . . . Harnessing the team to the ‘LaCroix Effect’ and introducing the first clean label in the industry, Shasta Sparkling SDA (soft drink alternative), while expanding the use of BrandED and its consumer data intelligence, were all key in those ‘hard’ decisions. We are blessed in many ways. We are also a highly determined, keenly aggressive, smartly led team that will not allow anything to stand between us and our charge. Our ultimate greatness is helping to make our America kinder, healthier and respected for its greatness! So, what are we anticipating . . . . . . an evolution, a revolutionary perfect scenario where the health/fitness population demands choices or they will not continue to purchase! the cost! As a major part of fiscal resolution, America will demand of its citizens healthier lifestyles and this will involve goals and incentives to save and lower health care costs. This will work because debt-ridden America will not. This will work because it has to! The alternative is more than unhealthy. We, National Beverage, are perfectly ready and more – our assets, our brands and our philosophy are a fit with helping to make America healthier. Momentum will increase as exponential growth magnifies, initiated by the replacement of unhealthy choices with healthier options. Retailers will devote space to healthier products and a dynamic period will occur just like the beginning of the soda At present, we are in August and our first quarter has concluded – so we are anticipating spectacular results! Additionally, we want the momentum on all fronts to continue; innovation, creativity, sales and distribution to intensify; team harmony and courage to stand up to the challenges that an industry leader must confront; but, most notably . . . never, never focus on what others in our industry are doing. Instead, remain as vigilant on the space – the difference between us and the competition. If that space or difference gets bigger, we are doing the right things. If that space tightens, we must work to regain it – at whatever We are Team National and our passion, agility and innovation will magnetize us to this leadership place – and here we will stay! So, side-by-side with you, our shareholder, our teammate and our friend, let us continue to feel grateful for our good fortune. Our fiscal first quarter will redefine the caliber of our determined focus! Joy, peace and goodness is on our minds and in our hearts. Drink Healthy, Think Healthy and Be Healthy and just maybe – a great habit is born! “With every package of Healthy Innocent LaCroix and Shasta Sparkling SDA (soft drink alternative) that is sold, we are accelerating the evolution – the transformation from once-upon-a-time acceptable – to today, technically great and smarter!” Someone will feature a story in the future that portrays a beautiful can of sparkling water with the word Innocent printed on it, a Tesla electric car and a Smartphone with a Health App . . . ‘The Beginning’ the story will read! Inevitable . . . sure thing!! These last few years have witnessed a broad, startlingly chaotic transformation in our society, our planet, our lives and our Company. Yesteryear, if someone was opposing an acceptable trend, they were stuck-in-the-mud or a radical. Today, they are Gen Z or Millennials and different is praised and applauded for the courage provoking the change. National Beverage deserves a tremendous amount of praise . . . not because I think so, but because consumers, retailers and investors say so! Why? . . . for the vision to accept the changing world and, far more importantly, to embrace the challenges and do something about them! Just recently, a major retailer selected brand LaCroix as its class partner due to its outstanding performance; and that same week our common stock reached a record high. Today, our Company is an enterprising innovator, leaving the traditional superhighway behind. Our new course, our new pathway is called . . . ‘Inevitable’ and our vehicle’s name – ‘Exponential!’ At destiny’s resting place, we will have clearly resolved the magic of our mission . . . ‘Indeterminable Value!’ FY2016 was indeed our ‘Breakout Year’ relative to innovation, creativity and financial results. Fundamentally, the financials speak for themselves. More important than the numbers, were the ‘hard’ decisions relative to strengthening the resolve and tweaking the focus on execution changes affecting the marketing and selling of sparkling water. A very significant marketing strategy was employed with a Harnessing the team to the ‘LaCroix Effect’ and introducing the first clean label in the industry, Shasta Sparkling SDA (soft drink alternative), while expanding the use of BrandED and its consumer data intelligence, were all key in those ‘hard’ decisions. We are blessed in many ways. We are also a highly determined, keenly aggressive, smartly led team that will not allow anything to stand between us and our charge. Our ultimate greatness is helping to make our America kinder, healthier and respected for its greatness! So, what are we anticipating . . . . . . an evolution, a revolutionary perfect scenario where the health/fitness population demands choices or they As a major part of fiscal resolution, America will demand of its citizens healthier lifestyles and this will involve goals and incentives to save and lower health care costs. This will work because debt-ridden America will not. This will work because it has to! The alternative is more than unhealthy. We, National Beverage, are perfectly ready and more – our assets, our brands and our philosophy are a fit with helping to make America healthier. Momentum will increase as exponential growth magnifies, initiated by the replacement of unhealthy choices with healthier options. Retailers will devote space to healthier products and a dynamic period will occur just like the beginning of the soda greater focus on our leadership role in the sparkling water category. pop days. That’s what we anticipate . . . At present, we are in August and our first quarter has concluded – so we are anticipating spectacular results! Additionally, we want the momentum on all fronts to continue; innovation, creativity, sales and distribution to intensify; team harmony and courage to stand up to the challenges that an industry leader must confront; but, most notably . . . never, never focus on what others in our industry are doing. Instead, remain as vigilant on the space – the difference between us and the competition. If that space or difference gets bigger, we are doing the right things. If that space tightens, we must work to regain it – at whatever will not continue to purchase! the cost! We are Team National and our passion, agility and innovation will magnetize us to this leadership place – and here we will stay! So, side-by-side with you, our shareholder, our teammate and our friend, let us continue to feel grateful for our good fortune. Our fiscal first quarter will redefine the caliber of our determined focus! Joy, peace and goodness is on our minds and in our hearts. Drink Healthy, Think Healthy and Be Healthy and just maybe – a great habit is born! “With every package of Healthy Innocent LaCroix and Shasta Sparkling SDA (soft drink alternative) that is sold, we are accelerating the evolution – the transformation from once-upon-a-time acceptable – to today, technically great and smarter!” Someone will feature a story in the future that portrays a beautiful can of sparkling water with the word Innocent printed on it, a Tesla electric car and a Smartphone with a Health App . . . ‘The Beginning’ the story will read! Inevitable . . . sure thing!! These last few years have witnessed a broad, startlingly chaotic transformation in our society, our planet, our lives and our Company. Yesteryear, if someone was opposing an acceptable trend, they were stuck-in-the-mud or a radical. Today, they are Gen Z or Millennials and different is praised and applauded for the courage provoking the change. National Beverage deserves a tremendous amount of praise . . . not because I think so, but because consumers, retailers and investors say so! Why? . . . for the vision to accept the changing world and, far more importantly, to embrace the challenges and do something about them! Just recently, a major retailer selected brand LaCroix as its class partner due to its outstanding performance; and that same week our common stock reached a record high. greater focus on our leadership role in the sparkling water category. pop days. That’s what we anticipate . . . Today, our Company is an enterprising innovator, leaving the traditional superhighway behind. Our new course, our new pathway is called . . . ‘Inevitable’ and our vehicle’s name – ‘Exponential!’ At destiny’s resting place, we will have clearly resolved the magic of our mission . . . ‘Indeterminable Value!’ FY2016 was indeed our ‘Breakout Year’ relative to innovation, creativity and financial results. Fundamentally, the financials speak for themselves. More important than the numbers, were the ‘hard’ decisions relative to strengthening the resolve and tweaking the focus on execution changes affecting the marketing and selling of sparkling water. A very significant marketing strategy was employed with a Harnessing the team to the ‘LaCroix Effect’ and introducing the first clean label in the industry, Shasta Sparkling SDA (soft drink alternative), while expanding the use of BrandED and its consumer data intelligence, were all key in those ‘hard’ decisions. We are blessed in many ways. We are also a highly determined, keenly aggressive, smartly led team that will not allow anything to stand between us and our charge. Our ultimate greatness is helping to make our America kinder, healthier and respected for its greatness! So, what are we anticipating . . . . . . an evolution, a revolutionary perfect scenario where the health/fitness population demands choices or they As a major part of fiscal resolution, America will demand of its citizens healthier lifestyles and this will involve goals and incentives to save and lower health care costs. This will work because debt-ridden America will not. This will work because it has to! The alternative is more than unhealthy. We, National Beverage, are perfectly ready and more – our assets, our brands and our philosophy are a fit with helping to make America healthier. Momentum will increase as exponential growth magnifies, initiated by the replacement of unhealthy choices with healthier options. Retailers will devote space to healthier products and a dynamic period will occur just like the beginning of the soda At present, we are in August and our first quarter has concluded – so we are anticipating spectacular results! Additionally, we want the momentum on all fronts to continue; innovation, creativity, sales and distribution to intensify; team harmony and courage to stand up to the challenges that an industry leader must confront; but, most notably . . . never, never focus on what others in our industry are doing. Instead, remain as vigilant on the space – the difference between us and the competition. If that space or difference gets bigger, we are doing the right things. If that space tightens, we must work to regain it – at whatever will not continue to purchase! the cost! We are Team National and our passion, agility and innovation will magnetize us to this leadership place – and here we will stay! So, side-by-side with you, our shareholder, our teammate and our friend, let us continue to feel grateful for our good fortune. Our fiscal first quarter will redefine the caliber of our determined focus! Joy, peace and goodness is on our minds and in our hearts. Drink Healthy, Think Healthy and Be Healthy and just maybe – a great habit is born! Nick A. Caporella Chairman and Chief Executive Officer P.S. So, as one Salt Lake City ‘believer’ sighed: “I feel so fancy drinking from this elegant can! I feel like I should have my pinky up!” “Words rarely are spoken as precious as these,” my heart smiled! Financial Review SELECTED FINANCIAL DATA Fiscal Year Ended (In thousands, except per share and footnote amounts) April 30, 2016 May 2, 2015 May 3, 2014(3) April 27, 2013 April 28, 2012 SUMMARY OF OPERATIONS: Net sales Cost of sales Gross profit Selling, general and administrative expenses Interest expense Other expense (income)—net Income before income taxes Provision for income taxes $ 704,785 463,348 $ 645,825 426,685 $641,135 423,480 $ 662,007 444,757 $ 628,886 415,629 241,437 148,384 203 145 92,705 31,507 219,140 145,157 371 (1,101) 74,713 25,402 217,655 153,220 660 666 63,109 19,474 217,250 146,223 403 173 70,451 23,531 213,257 146,169 107 85 66,896 22,903 Net income $ 61,198 $ 49,311 $ 43,635 $ 46,920 $ 43,993 PER SHARE DATA: Basic earnings per common share(1) Diluted earnings per common share(1) Closing stock price Dividends paid on common stock(2) BALANCE SHEET DATA: Cash and equivalents(2) Working capital(2) Property, plant and equipment—net Total assets(2) Long-term debt Deferred income tax liability Shareholders’ equity(2) Dividends paid on common stock(2) $ 1.31 1.31 46.74 — $ 1.06 1.05 22.42 — $ .93 .92 19.21 — $ 1.01 1.01 14.57 2.55 $ .95 .95 14.68 — $ 105,577 148,057 61,932 305,498 — 14,474 206,152 — $ 52,456 101,478 60,182 247,750 10,000 15,245 147,782 — $ 29,932 78,618 59,494 222,841 30,000 13,873 106,201 $ 18,267 67,504 57,307 208,642 50,000 14,327 70,316 — 118,139 $ 35,626 69,818 56,729 222,988 — 14,214 121,636 — (1) Basic earnings per common share is computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per common share includes the dilutive effect of stock options. (2) In Fiscal 2013, the Company paid special cash dividends on Common Stock of $118.1 million ($2.55 per share). (3) Fiscal 2014 consisted of 53 weeks. 6 NATIONAL BEVERAGE CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW carbonated soft drinks for specific retailers (“Allied National Beverage Corp. proudly refreshes Brands”) that endorse a strategic alliance concept of America with a distinctive portfolio of Sparkling joint marketing to support growth of both brands. Waters, Juices, Energy Drinks and Carbonated Soft Our portfolio of Power+ Brands includes LaCroix®, Drinks. We believe that our ingenious product LaCroix Cúrate™, LaCroix NiCola™ and Shasta® designs, innovative packaging and imaginative sparkling water products; Rip It® energy drinks and flavors, along with our corporate culture and shots; and Everfresh®, Everfresh Premier Varietals™ philosophy, makes National Beverage unique in the and Mr. Pure® 100% juice and juice-based products. beverage industry. The Company’s primary market Our Carbonated Soft Drinks portfolio includes focus is the United States, but our products are also Shasta® and Faygo®, iconic brands whose flavor distributed in various other countries. National development spans more than 125 years. Beverage Corp. was incorporated in Delaware in To service a diverse customer base that includes 1985 and began trading as a public company on the numerous national retailers, as well as thousands of NASDAQ Stock Market in 1991. In this report, the smaller “up-and-down-the-street” accounts, we terms “we,” “us,” “our,” “Company” and “National utilize a hybrid distribution system to deliver our Beverage” mean National Beverage Corp. and its products primarily through the take-home, subsidiaries unless indicated otherwise. convenience and food-service channels. National Beverage is in an ongoing transition to Our strategy emphasizes the growth of our meet the healthy hydration demands of the American products by (i) developing healthier beverages in consumer. Health and wellness awareness has response to the global shift in consumer buying increased significantly, resulting in growing demand habits and tailoring the variety and types of beverages for beverages with little or no calories and wholesome in our portfolio to satisfy the preferences of a diverse natural ingredients. Our brands emphasize distinctly- mix of ‘crossover consumers’ – a growing group flavored beverages in attractive packaging that desiring a change to better-for-you beverages; (ii) appeal to multiple demographic groups. The emphasizing flavor development and variety attentive, conscious and discriminating consumer is throughout our product lines and brands; (iii) ever more alert to healthy choices and better-for-you producing and developing products of the highest ingredients that align to this transition and strategic quality that also appeal to the value expectations of focus. the consumer; (iv) leveraging our efficient production Our brands consist of (i) beverages geared to the and distribution systems, and our cost-effective active and health-conscious consumer (“Power+ social media and regionally focused marketing Brands”) including sparkling waters, energy drinks, programs, to profitably deliver products at optimal and juices, and (ii) Carbonated Soft Drinks in a variety consumer price-points; and (v) responding faster and of flavors including regular, sugar-free and reduced more creatively to consumer trends than competitors calorie options. To a lesser extent, we produce who are burdened by production and distribution NATIONAL BEVERAGE CORP. 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) complexity as well as legacy costs. for Fiscal 2015. The increase in gross profit is primarily The majority of our sales are seasonal with the due to higher sales and a decline in cost of sales per highest volume typically realized during the summer case of .4%. The decrease in cost of sales per case and warmer months. As a result, our operating was due to favorable product mix changes and lower results from one fiscal quarter to the next may not be raw material costs. As a result, gross margin comparable. Additionally, our operating results are improved to 34.3%. affected by numerous factors, including fluctuations Gross profit was 33.9% of net sales for Fiscal in the costs of raw materials, changes in consumer 2015 and Fiscal 2014. Cost of sales per unit declined preference for beverage products, competitive pricing .3% primarily due to product mix changes. in the marketplace and weather conditions. Shipping and handling costs are included in selling, general and administrative expenses, the RESULTS OF OPERATIONS classification of which is consistent with many beverage companies. However, our gross margin Net Sales Net sales for the fiscal year ended April may not be comparable to companies that include 30, 2016 (“Fiscal 2016”) increased 9.1% to $704.8 shipping and handling costs in cost of sales. See million compared to $645.8 million for the fiscal year Note 1 of Notes to Consolidated Financial Statements. ended May 2, 2015 (“Fiscal 2015”). The higher sales resulted from a 9.0% increase in case volume and a Selling, General and Administrative Expenses slight increase in average selling price. The volume Selling, general and administrative expenses were increase includes 31.4% growth of our Power+ $148.4 million or 21.1% of net sales for Fiscal 2016 Brands, partially offset by a decline in branded compared to $145.2 million or 22.5% of net sales for carbonated soft drinks and Allied Brands. Fiscal 2015. Fiscal 2016 expenses reflect higher Net sales for Fiscal 2015 increased .7% to $645.8 distribution, selling and other volume related costs, million compared to $641.1 million for the fiscal year partially offset by lower marketing costs. ended May 3, 2014 (“Fiscal 2014”). The higher sales Selling, general and administrative expenses resulted from a 1.1% increase in case volume partially were $145.2 million or 22.5% of net sales for Fiscal offset by a .4% decline in average selling price. The 2015 compared to $153.2 million or 23.9% of net increase in case volume reflects a 2.9% increase in sales for Fiscal 2014. Fiscal 2015 expenses reflect branded volume, including a 15.3% case volume l o w e r s e l l i n g a n d m a r ke t i n g c o s t s . growth for our Power+ Brands, partially offset by a decline in Allied Brands. The decline in average Interest Expense and Other Expense (Income) - selling price is related to changes in product mix. Net Interest expense is comprised of interest on borrowings and fees related to maintaining lines of Gross Profit Gross profit for Fiscal 2016 increased credit. Due to repayments on borrowings, interest 10.2% to $241.4 million compared to $219.1 million expense decreased to $203,000 in Fiscal 2016 from 8 NATIONAL BEVERAGE CORP. $371,000 in Fiscal 2015 and $660,000 in Fiscal 2014. equipment amounted to $12.1 million for Fiscal 2016. Other expense is net of interest income of $107,000 The Company expects to increase capital for Fiscal 2016, $30,000 for Fiscal 2015 and $15,000 expenditures in Fiscal 2017 to support volume for Fiscal 2014. The change in interest income is due growth. to changes in average invested balances. Other On January 25, 2013, the Company sold 400,000 income for Fiscal 2015 includes a $1.3 million gain on shares of Special Series D Preferred Stock (“Series D sale of property. Preferred”), par value $1 per share for an aggregate purchase price of $20 million. On May 2, 2014, the Income Taxes Our effective tax rate was 34% for Company redeemed 160,000 shares of Series D Fiscal 2016, 34% for Fiscal 2015 and 30.9% for Fiscal Preferred, representing 40% of the amount 2014. The difference between the effective rate and outstanding, for an aggregate price of $8 million. On the federal statutory rate of 35% was primarily due to August 1, 2014, The Company redeemed 120,000 the effects of state income taxes, the domestic shares of Series D Preferred, representing 50% of the manufacturing deduction and, for Fiscal 2014, amount outstanding, for an aggregate price of $6 adjustment of unrecognized tax benefits related to million. On April 29, 2016, the Company redeemed the resolution of certain open tax years. See Note 7 120,000 shares of Series D Preferred, representing of Notes to Consolidated Financial Statements. the remaining shares outstanding, for an aggregate price of $6 million. See Note 5 of Notes to LIQUIDITY AND FINANCIAL CONDITION Consolidated Financial Statements. Pursuant to a management agreement, we Liquidity and Capital Resources Our principal incurred a fee to Corporate Management Advisors, source of funds is cash generated from operations Inc. (“CMA”) of $7.0 million for Fiscal 2016, $6.5 and borrowings available under our credit facilities. million for Fiscal 2015 and $6.4 million for Fiscal 2014. At April 30, 2016, we maintained $100 million At April 30, 2016, management fees payable to CMA unsecured revolving credit facilities, no borrowings were $1.8 million. See Note 5 of Notes to were outstanding and $2.2 million was reserved for Consolidated Financial Statements. standby letters of credit. We believe that existing capital resources will be sufficient to meet our liquidity Cash Flows During Fiscal 2016, $79.0 million was and capital requirements for the next twelve months. provided by operating activities, $12.0 million was See Note 4 of Notes to Consolidated Financial used in investing activities and $13.8 million was Statements. used in financing activities. Cash provided by We continually evaluate capital projects to operating activities increased $20.9 million primarily expand our production capacity, enhance packaging due to increased earnings and favorable changes in capabilities or improve efficiencies at our production working capital. Cash used in investing activities facilities. Expenditures for property, plant and increased $2.3 million reflecting higher capital NATIONAL BEVERAGE CORP. 9 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) expenditures and lower proceeds from the sale of resulted from higher cash, trade receivables and property. Cash used in financing activities was $13.8 inventory, partially offset by higher accounts payable million which included a $6 million redemption of and accrued liabilities. Trade receivables increased preferred stock and $10 million in principal $1.1 million due to higher sales activity while days repayments under credit facilities. sales outstanding improved to 31.0 days from 33.1 During Fiscal 2015, $58.0 million was provided days. Inventories increased $5.0 million as a result of by operating activities, $9.7 million was used in the Company maintaining higher finished goods investing activities and $25.8 million was used in levels to support increases in sales and new product financing activities. Cash provided by operating introductions. Annual inventory turns decreased to activities increased $5.6 million primarily due to 9.5 from 10.2 times. At April 30, 2016, the current increased earnings. Cash used in investing activities ratio was 3.0 to 1 compared to 2.5 to 1 at May 2, decreased $2.3 million reflecting lower capital 2015. expenditures and proceeds of $1.9 from the sale of During Fiscal 2015, our working capital increased property. Cash used in financing activities was $25.8 $22.9 million to $101.5 million primarily due to cash million which included a $6 million redemption of generated from operating activities. Trade receivables preferred stock and $20 million in principal increased $1.7 million due to higher sales activity and repayments under credit facilities. days sales outstanding improved to 33.1 days from 34.7 days. Inventories decreased $1.0 million and Financial Position During Fiscal 2016, our working annual inventory turns improved to 10.2 from 9.4 capital increased to $148.1 million from $101.5 million times. At May 2, 2015, the current ratio was 2.5 to 1 at May 2, 2015. The increase in working capital compared to 2.2 to 1 at May 3, 2014. CONTRACTUAL OBLIGATIONS Contractual obligations at April 30, 2016 are payable as follows: (In thousands) Operating leases Purchase commitments Total Total $26,033 50,553 Less Than 1 Year 1 to 3 Years 3 to 5 Years More Than 5 Years $6,376 50,553 $10,034 — $6,205 — $3,418 — $76,586 $56,929 $10,034 $ 6,205 $3,418 As of April 30, 2016, we guaranteed the residual lease when the lease terminates on August 1, 2017, value of certain leased equipment in the amount of the Company shall be required to pay the difference $4.4 million. If the proceeds from the sale of such up to such guaranteed amount. The Company equipment are less than the balance required by the expects to have no loss on such guarantee. 10 NATIONAL BEVERAGE CORP. We contribute to certain pension plans under Although these estimates are based on management’s collective bargaining agreements and to a knowledge of current events and actions it may discretionary profit sharing plan. Total contributions undertake in the future, they may ultimately differ were $2.9 million for Fiscal 2016, $2.7 million for from actual results. We believe that the critical Fiscal 2015 and $2.7 million for Fiscal 2014. See accounting policies described in the following Note 9 of Notes to Consolidated Financial Statements. paragraphs comprise the most significant estimates We maintain self-insured and deductible programs for certain liability, medical and workers’ compensation exposures. Other long-term liabilities include known claims and estimated incurred but not reported claims not otherwise covered by insurance, based on actuarial assumptions and historical claims experience. Since the timing and amount of claim payments vary significantly, we are not able to reasonably estimate future payments for specific periods and therefore such payments have not been included in the table above. Standby letters of credit aggregating $2.2 million have been issued in connection with our self-insurance programs. These standby letters of credit expire through March 2017 and are expected to be renewed. OFF-BALANCE SHEET ARRANGEMENTS We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition. CRITICAL ACCOUNTING POLICIES and assumptions used in the preparation of our consolidated financial statements. For these policies, we caution that future events rarely develop exactly as estimated and the best estimates routinely require adjustment. Credit Risk We sell products to a variety of customers and extend credit based on an evaluation of each customer’s financial condition, generally without requiring collateral. Exposure to credit losses varies by customer principally due to the financial condition of each customer. We monitor our exposure to credit losses and maintain allowances for anticipated losses based on specific customer circumstances, credit conditions and historical write-offs. Impairment of Long-Lived Assets All long-lived assets, excluding goodwill and intangible assets not subject to amortization, are evaluated for impairment on the basis of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impaired asset is written down to its estimated fair market value based on the best information available. The preparation of financial statements in Estimated fair market value is generally measured by conformity with generally accepted accounting discounting future cash flows. Goodwill and principles requires management to make estimates intangible assets not subject to amortization are and assumptions that affect the amounts reported in evaluated for impairment annually or sooner if we the financial statements and accompanying notes. believe such assets may be impaired. An impairment NATIONAL BEVERAGE CORP. 11 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) loss is recognized if the carrying amount or, for factors. Sales incentives are accounted for as a goodwill, the carrying amount of its reporting unit, is reduction of sales and actual amounts ultimately greater than its fair value. realized may vary from accrued amounts. Income Taxes Our effective income tax rate is based FORWARD-LOOKING STATEMENTS on estimates of taxes which will ultimately be payable. Deferred taxes are recorded to give recognition to National Beverage and its representatives may make temporary differences between the tax bases of written or oral statements relating to future events or assets or liabilities and their reported amounts in the results relative to our financial, operational and financial statements. Valuation allowances are business performance, achievements, objectives and established to reduce the carrying amounts of strategies. These statements are “forward-looking” deferred tax assets when it is deemed, more likely within the meaning of the Private Securities Litigation than not, that the benefit of deferred tax assets will Reform Act of 1995 and include statements contained not be realized. in this report, filings with the Securities and Exchange Commission and in reports to our stockholders. Insurance Programs We maintain self-insured and Certain statements including, without limitation, deductible programs for certain liability, medical and statements containing the words “believes,” workers’ compensation exposures. Accordingly, we “anticipates,” “intends,” “plans,” “expects,” and accrue for known claims and estimated incurred but “estimates” constitute “forward-looking statements” not reported claims not otherwise covered by and involve known and unknown risk, uncertainties insurance based on actuarial assumptions and and other factors that may cause the actual results, historical claims experience. performance or achievements of our Company to be Sales Incentives We offer various sales incentive arrangements to our customers that require customer performance or achievement of certain sales volume targets. When the incentive is paid in advance, we amortize the amount paid over the period of benefit or contractual sales volume; otherwise, we accrue the expected amount to be paid over the period of benefit or expected sales volume. The recognition of these incentives involves the use of judgment related to performance and sales volume estimates that are made based on historical experience and other materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following: general economic and business conditions, pricing of competitive products, success of new product and flavor introductions, fluctuations in the costs of raw materials and packaging supplies, ability to pass along cost increases to our customers, labor strikes or work stoppages or other interruptions in the employment of labor, continued retailer support for our products, changes in consumer preferences and our success in creating products geared toward 12 NATIONAL BEVERAGE CORP. consumers’ tastes, success in implementing fluctuations. If the interest rate on our debt changed business strategies, changes in business strategy or by 100 basis points (1%), our interest expense for development plans, government regulations, taxes or Fiscal 2016 would have changed by approximately fees imposed on the sale of our products, unfavorable $50,000. weather conditions and other factors referenced in this report, filings with the Securities and Exchange Commission and other reports to our stockholders. We disclaim an obligation to update any such factors or to publicly announce the results of any revisions to any forward-looking statements contained herein to reflect future events or developments. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Commodities We purchase various raw materials, including aluminum cans, plastic bottles, high fructose corn syrup, corrugated packaging and juice concentrates, the prices of which fluctuate based on commodity market conditions. Our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. At times, we manage our exposure to this risk through the use of supplier pricing agreements that enable us to establish all, or a portion of, the purchase prices for certain raw materials. Additionally, we use derivative financial instruments to partially mitigate our exposure to changes in certain raw material costs. Interest Rates During Fiscal 2016, the Company repaid $10 million in borrowings under its credit facilities. At April 30, 2016, the Company had no borrowings outstanding. Interest rate hedging products are not used to mitigate risk from interest NATIONAL BEVERAGE CORP. 13 CONSOLIDATED BALANCE SHEETS (In thousands, except share data) ASSETS Current assets: Cash and equivalents Trade receivables—net Inventories Deferred income taxes—net Prepaid and other assets Total current assets Property, plant and equipment—net Goodwill Intangible assets Other assets Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable Accrued liabilities Income taxes payable Total current liabilities Long-term debt Deferred income taxes—net Other liabilities Shareholders’ equity: Preferred stock, $1 par value—1,000,000 shares authorized Series C—150,000 shares issued Series D—120,000 shares issued (2015), aggregate liquidation preference of $6,000 (2015) Common stock, $.01 par value—75,000,000 shares authorized; 50,588,734 shares (2016) and 50,418,019 shares (2015) issued Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock—at cost: Series C preferred stock—150,000 shares Common stock—4,032,784 shares Total shareholders’ equity Total liabilities and shareholders’ equity See accompanying Notes to Consolidated Financial Statements. 14 NATIONAL BEVERAGE CORP. April 30, 2016 May 2, 2015 $ 105,577 61,046 47,922 4,454 4,672 223,671 61,932 13,145 1,615 5,135 $ 52,456 59,951 42,924 4,348 8,050 167,729 60,182 13,145 1,615 5,079 $ 305,498 $ 247,750 $ 49,391 26,195 28 $ 44,896 21,257 98 75,614 — 14,474 9,258 66,251 10,000 15,245 8,472 150 — 150 120 506 34,570 190,733 (1,807) 504 37,759 129,773 (2,524) (5,100) (12,900) (5,100) (12,900) 206,152 147,782 $ 305,498 $ 247,750 CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) Net sales Cost of sales Gross profit Selling, general and administrative expenses Interest expense Other expense (income)—net Income before income taxes Provision for income taxes Net income Less preferred dividends and accretion Fiscal Year Ended April 30, 2016 May 2, 2015 May 3, 2014 $ 704,785 463,348 $ 645,825 426,685 $ 641,135 423,480 241,437 148,384 203 145 92,705 31,507 61,198 (238) 219,140 145,157 371 (1,101) 74,713 25,402 49,311 (275) 217,655 153,220 660 666 63,109 19,474 43,635 (726) Earnings available to common shareholders $ 60,960 $ 49,036 $ 42,909 Earnings per common share: Basic Diluted Weighted average common shares outstanding: Basic Diluted See accompanying Notes to Consolidated Financial Statements. $ $ 1.31 1.31 $ $ 1.06 1.05 $ $ .93 .92 46,452 46,671 46,353 46,559 46,331 46,519 NATIONAL BEVERAGE CORP. 15 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Net income Other comprehensive income (loss), net of tax: Cash flow hedges Other Total Comprehensive income See accompanying Notes to Consolidated Financial Statements. Fiscal Year Ended April 30, 2016 May 2, 2015 May 3, 2014 $61,198 $49,311 $43,635 783 (66) 717 (2,350) 31 (2,319) 610 149 759 $61,915 $46,992 $44,394 16 NATIONAL BEVERAGE CORP. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands) Shares Amount Shares Amount Shares Amount Fiscal Year Ended April 30, 2016 May 2, 2015 May 3, 2014 SERIES C PREFERRED STOCK Beginning and end of year SERIES D PREFERRED STOCK Beginning of year Series D preferred redeemed End of year COMMON STOCK Beginning of year Stock options exercised End of year ADDITIONAL PAID-IN CAPITAL Beginning of year Series D preferred redeemed Stock options exercised Stock-based compensation Stock-based tax benefits Other End of year RETAINED EARNINGS Beginning of year Net income Preferred stock dividends & accretion End of year ACCUMULATED OTHER COMPREHENSIVE LOSS Beginning of year Cash flow hedge Other End of year TREASURY STOCK—SERIES C PREFERRED Beginning and end of year TREASURY STOCK—COMMON Beginning and end of year 150 $ 150 150 $ 150 150 $ 150 120 (120) — 50,418 171 50,589 120 (120) — 240 (120) 120 240 (120) 120 400 (160) 240 504 2 50,368 50 504 — 50,362 6 506 50,418 504 50,368 37,759 (5,791) 846 228 1,528 — 34,570 129,773 61,198 (238) 190,733 (2,524) 783 (66) (1,807) 42,775 (5,791) 228 307 240 — 37,759 80,737 49,311 (275) 129,773 (205) (2,350) 31 (2,524) 400 (160) 240 504 — 504 50,398 (7,722) 47 95 17 (60) 42,775 37,828 43,635 (726) 80,737 (964) 610 149 (205) 150 (5,100) 150 (5,100) 150 (5,100) 4,033 (12,900) 4,033 (12,900) 4,033 (12,900) TOTAL SHAREHOLDERS’ EQUITY $ 206,152 $ 147,782 $ 106,201 See accompanying Notes to Consolidated Financial Statements. NATIONAL BEVERAGE CORP. 17 CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization Deferred income tax (benefit) provision Loss (gain) on disposal of property, net Stock-based compensation Changes in assets and liabilities: Trade receivables Inventories Prepaid and other assets Accounts payable Accrued and other liabilities Fiscal Year Ended April 30, 2016 May 2, 2015 May 3, 2014 $ 61,198 $ 49,311 $ 43,635 12,056 (1,299) 129 228 (1,095) (4,998) (485) 4,495 8,726 11,580 1,076 (1,188) 307 (1,746) 990 (605) (710) (995) 11,708 79 51 95 5,864 (4,680) (2,548) 1,345 (3,167) Net cash provided by operating activities 78,955 58,020 52,382 INVESTING ACTIVITIES: Additions to property, plant and equipment Proceeds from sale of property, plant and equipment Net cash used in investing activities FINANCING ACTIVITIES: Dividends paid on preferred stock Repayments under credit facilities, net Redemption of preferred stock Proceeds from stock options exercised Stock-based tax benefits Other Net cash used in financing activities NET INCREASE IN CASH AND EQUIVALENTS CASH AND EQUIVALENTS—BEGINNING OF YEAR (12,140) 116 (11,630) 1,905 (12,124) 62 (12,024) (9,725) (12,062) (186) (10,000) (6,000) 848 1,528 — (239) (20,000) (6,000) 228 240 — (659) (20,000) (8,000) 47 17 (60) (13,810) (25,771) (28,655) 53,121 52,456 22,524 29,932 11,665 18,267 CASH AND EQUIVALENTS—END OF YEAR $ 105,577 $ 52,456 $ 29,932 OTHER CASH FLOW INFORMATION: Interest paid Income taxes paid See accompanying Notes to Consolidated Financial Statements. 18 NATIONAL BEVERAGE CORP. $ 116 $ 380 $ 723 $ 29,473 $ 24,745 $ 23,079 NATIONAL BEVERAGE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS National Beverage Corp. develops, produces, Consolidated Balance Sheets. We do not use markets and sells a diverse portfolio of flavored derivative financial instruments for trading or beverage products primarily in North America. speculative purposes. Credit risk related to derivative Incorporated in Delaware in 1985, National Beverage financial instruments is managed by requiring high Corp. is a holding company for various operating credit standards for counterparties and frequent subsidiaries. When used in this report, the terms cash settlements. See Note 6. “we,” “us,” “our,” “Company” and “National Beverage” mean National Beverage Corp. and its subsidiaries. Earnings Per Common Share Basic earnings per common share is computed by dividing earnings 1. SIGNIFICANT ACCOUNTING POLICIES available to common shareholders by the weighted average number of common shares outstanding Basis of Presentation The consolidated financial during the period. Diluted earnings per common statements have been prepared in accordance with share is calculated in a similar manner, but includes United States generally accepted accounting the dilutive effect of stock options amounting to principles (“GAAP”) and rules and regulations of the 219,000 shares in Fiscal 2016, 206,000 shares in Securities and Exchange Commission. The Fiscal 2015 and 188,000 shares in Fiscal 2014. consolidated financial statements include the accounts of National Beverage Corp. and all Fair Value The fair value of long-term debt subsidiaries. All significant intercompany transactions approximates its carrying value due to its variable and accounts have been eliminated. Our fiscal year interest rate and lack of prepayment penalty. The ends the Saturday closest to April 30 and, as a result, estimated fair values of derivative financial instruments an additional week is added every five or six years. are calculated based on market rates to settle the Fiscal 2016 and Fiscal 2015 consisted of 52 weeks instruments. These values represent the estimated while Fiscal 2014 consisted of 53 weeks. amounts we would receive upon sale, taking into consideration current market prices and credit Cash and Equivalents Cash and equivalents are worthiness. See Note 6. comprised of cash and highly liquid securities (consisting primarily of short-term money-market Impairment of Long-Lived Assets All long-lived investments) with an original maturity of three months assets, excluding goodwill and intangible assets not or less. subject to amortization, are evaluated for impairment on the basis of undiscounted cash flows whenever Derivative Financial Instruments We use derivative events or changes in circumstances indicate that the financial instruments to partially mitigate our exposure carrying amount of an asset may not be recoverable. to changes in raw material costs. All derivative An impaired asset is written down to its estimated fair financial instruments are recorded at fair value in our market value based on the best information available. NATIONAL BEVERAGE CORP. 19 NATIONAL BEVERAGE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Estimated fair value is generally measured by Inventories Inventories are stated at the lower of discounting future cash flows. Goodwill and first-in, first-out cost or market. Inventories at April intangible assets not subject to amortization are 30, 2016 were comprised of finished goods of $29.1 evaluated for impairment annually or sooner if we million and raw materials of $18.8 million. Inventories believe such assets may be impaired. An impairment at May 2, 2015 were comprised of finished goods of loss is recognized if the carrying amount or, for $24.9 million and raw materials of $18.0 million. goodwill, the carrying amount of its reporting unit, is greater than its fair value. Marketing Costs We are involved in a variety of marketing programs, including cooperative Income Taxes Our effective income tax rate is based advertising programs with customers, to advertise on estimates of taxes which will ultimately be payable. and promote our products to consumers. Marketing Deferred taxes are recorded to give recognition to costs are expensed when incurred, except for temporary differences between the tax bases of prepaid advertising and production costs which are assets or liabilities and their reported amounts in the expensed when the advertising takes place. financial statements. Valuation allowances are Marketing costs, which are included in selling, established to reduce the carrying amounts of general and administrative expenses, totaled $38.8 deferred tax assets when it is deemed, more likely million in Fiscal 2016, $42.4 million in Fiscal 2015 and than not, that the benefit of deferred tax assets will $50.2 million in Fiscal 2014. not be realized. New Accounting Pronouncements In March 2016, Insurance Programs We maintain self-insured and the Financial Accounting Standards Board (“FASB”) deductible programs for certain liability, medical and issued Accounting Standards Update 2016-09, workers’ compensation exposures. Accordingly, we “Compensation-Stock Compensation: Improvements accrue for known claims and estimated incurred but to Employee Share-Based Payment Accounting” not reported claims not otherwise covered by (“ASU 2016-09”). This amendment addresses several insurance based on actuarial assumptions and aspects of the accounting for share-based payment historical claims experience. At April 30, 2016 and transactions, including the income tax consequences, May 2, 2015, other liabilities included accruals of $5.8 classification of awards as either equity or liabilities million and $5.9 million, respectively, for estimated and classification on the statement of cash flows. non-current risk retention exposures, of which $4.8 ASU 2016-09 is effective for our fiscal year beginning million and $4.7 million were covered by insurance. April 30, 2017. Early adoption is permitted. We are Intangible Assets Intangible assets as of April 30, this guidance on our consolidated financial currently evaluating the potential impact of adopting 2016 and May 2, 2015 consisted of non-amortizable statements. trademarks. 20 NATIONAL BEVERAGE CORP. In February 2016, the FASB issued Accounting maintenance and repairs that do not extend the Standards Update No. 2016-02, “Leases” (“ASU useful life of an asset are expensed as incurred. 2016-02”). ASU 2016-02 requires the lease rights Depreciation is recorded using the straight-line and obligations arising from lease contracts, including method over estimated useful lives of 7 to 30 years existing and new arrangements, to be recognized as for buildings and improvements and 3 to 15 years for assets and liabilities on the balance sheet. ASU machinery and equipment. Leasehold improvements 2016-02 is effective for our fiscal year beginning April are amortized using the straight-line method over the 28, 2019. We are currently evaluating the potential shorter of the remaining lease term or the estimated impact of adopting this guidance on our consolidated useful life of the improvement. When assets are financial statements. retired or otherwise disposed, the cost and In November 2015, the FASB issued Accounting accumulated depreciation are removed from the Standards Update No. 2015-17, “Balance Sheet respective accounts and any related gain or loss is Classification of Deferred Taxes” (“ASU 2015-17”). recognized. ASU 2015-17 requires companies to classify all deferred tax liabilities and assets as noncurrent on Revenue Recognition Revenue from product sales is the balance sheet. ASU 2015-17 is effective for our recognized when title and risk of loss pass to the fiscal year beginning April 30, 2017. We are currently customer, which generally occurs upon delivery. Our evaluating the potential impact of adopting this policy is not to allow the return of products once they guidance on our consolidated financial statements. have been accepted by the customer. However, on In May 2014, the FASB issued Accounting occasion, we have accepted returns or issued credit Standards Update No. 2014-09, “Revenue from to customers, primarily for damaged goods. The Contracts with Customers” (“ASU 2014-09”). ASU amounts have been immaterial and, accordingly, we 2014-09 requires an entity to recognize revenue in an do not provide a specific valuation allowance for amount that reflects the consideration it expects to sales returns. receive in exchange for goods or services. On August 12, 2015, the FASB issued ASU 2015-14 Sales Incentives We offer various sales incentive which deferred the effective date of ASU 2014-09 by arrangements to our customers that require customer one year and is effective for our fiscal year beginning performance or achievement of certain sales volume April 29, 2018. We are currently evaluating the targets. When the incentive is paid in advance, we potential impact of adopting this guidance on our amortize the amount paid over the period of benefit consolidated financial statements. or contractual sales volume; otherwise, we accrue the expected amount to be paid over the period of Property, Plant and Equipment Property, plant and benefit or expected sales volume. The recognition of equipment are recorded at cost. Additions, these incentives involves the use of judgment related replacements and betterments are capitalized, while to performance and sales volume estimates that are NATIONAL BEVERAGE CORP. 21 NATIONAL BEVERAGE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) made based on historical experience and other based on an evaluation of each customer’s financial factors. Sales incentives are accounted for as a condition, generally without requiring collateral. reduction of sales and actual amounts ultimately Exposure to credit losses varies by customer realized may vary from accrued amounts. principally due to the financial condition of each customer. We monitor our exposure to credit losses Segment Reporting We operate as a single operating and maintain allowances for anticipated losses based segment for purposes of presenting financial on specific customer circumstances, credit information and evaluating performance. As such, conditions and historical write-offs. Activity in the the accompanying consolidated financial statements allowance for doubtful accounts was as follows: present financial information in a format that is consistent with the internal financial information used (In thousands) Fiscal 2016 Fiscal 2015 Fiscal 2014 by management. We do not accumulate revenues by product classification and, therefore, it is impractical to present such information. Shipping and Handling Costs Shipping and handling Balance at beginning of year Net charge to expense Net charge-off $ 330 232 (78) $ 399 $ 454 95 (150) 117 (186) Balance at end of year $ 484 $ 330 $399 costs are reported in selling, general and As of April 30, 2016 and May 2, 2015, we did not administrative expenses in the accompanying have any customer that comprised more than 10% of consolidated statements of income. Such costs trade receivables. No one customer accounted for aggregated $44.6 million in Fiscal 2016 and $44.4 more than 10% of net sales during any of the last million in Fiscal 2015 and Fiscal 2014. Although our three fiscal years. classification is consistent with many beverage companies, our gross margin may not be comparable Use of Estimates The preparation of financial to companies that include shipping and handling statements in conformity with United States generally costs in cost of sales. accepted accounting principles requires management to make estimates and assumptions that affect the Stock-Based Compensation Compensation amounts reported in the financial statements and expense for stock-based compensation awards is accompanying notes. Although these estimates are recognized over the vesting period based on the based on management’s knowledge of current grant-date fair value estimated using the Black- events and anticipated future actions, actual results Scholes model. See Note 8. may vary from reported amounts. Trade Receivables We record trade receivables at net realizable value, which includes an appropriate allowance for doubtful accounts. We extend credit 22 NATIONAL BEVERAGE CORP. 2. PROPERTY, PLANT AND EQUIPMENT The Credit Facilities expire from October 10, 2017 to June 18, 2018 and, currently, any borrowings would Property, plant and equipment as of April 30, 2016 bear interest at .9% above one-month LIBOR. There and May 2, 2015 consisted of the following: were no borrowings outstanding under the Credit Facilities at April 30, 2016 and $10 million was (In thousands) 2016 2015 outstanding at May 2, 2015. At April 30, 2016, $2.2 Land Buildings and improvements Machinery and equipment $ 9,500 50,856 162,195 $ 9,500 50,405 156,702 Total Less accumulated depreciation 222,551 (160,619) 216,607 (156,425) Property, plant and equipment—net $ 61,932 $ 60,182 Depreciation expense was $10.1 million for Fiscal 2016, $10.2 million for Fiscal 2015 and $9.8 million for Fiscal 2014. million of the Credit Facilities were reserved for standby letters of credit and $97.8 million were available for borrowings. The Credit Facilities require the subsidiary to maintain certain financial ratios, including debt to net worth and debt to EBITDA (as defined in the Credit Facilities), and contain other restrictions, none of which are expected to have a material effect on our operations or financial position. At April 30, 2016, we were in compliance with all loan covenants. 3. ACCRUED LIABILITIES 5. CAPITAL STOCK AND TRANSACTIONS WITH RELATED PARTIES Accrued liabilities as of April 30, 2016 and May 2, 2015 consisted of the following: (In thousands) Accrued compensation Accrued promotions Accrued insurance Other Total 4. DEBT 2016 2015 $ 9,217 5,888 2,786 8,304 $ 7,473 3,801 1,651 8,332 $ 26,195 $ 21,257 At April 30, 2016, a subsidiary of the Company maintained unsecured revolving credit facilities with banks aggregating $100 million (the “Credit Facilities”). On January 25, 2013, the Company sold 400,000 shares of Special Series D Preferred Stock, par value $1 per share (“Series D Preferred”) for an aggregate purchase price of $20 million. Series D Preferred had a liquidation preference of $50 per share and accrued dividends on this amount at an annual rate of 3% through April 30, 2014 and, thereafter, at an annual rate equal to 370 basis points above the 3-Month LIBOR. Dividends were cumulative and payable quarterly. There were no accrued dividends at April 30, 2016 and $37,000 was accrued at May 2, 2015. The Series D Preferred was nonvoting and redeemable at the option of the Company beginning May 1, 2014 at $50 per share. In addition, the Company has 150,000 shares of Series C Preferred NATIONAL BEVERAGE CORP. 23 NATIONAL BEVERAGE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Stock, par value $1 per share, which are held as On April 29, 2016, the Company redeemed the treasury stock and, therefore, such shares have no final remaining 120,000 shares of Series D Preferred liquidation value. for an aggregate price of $6 million plus accrued On May 2, 2014, the Company redeemed dividends. In connection therewith, the Company 160,000 shares of Series D Preferred, representing accreted and charged to retained earnings $89,000 40% of the amount outstanding, for an aggregate of original issuance costs, which was deducted from price of $8 million plus accrued dividends. In income available to common shareholders for connection therewith, the Company accreted and earnings per share calculation. charged to retained earnings $118,000 of original In April 2012, the Board of Directors authorized issuance costs, which was deducted from income an increase in the Company’s Stock Buyback available to common shareholders for earnings per Program from 800,000 to 1.6 million shares of share calculation. In conjunction with the partial common stock. As of April 30, 2016, 502,060 shares redemption, the annual dividend rate on the were purchased under the program and 1,097,940 outstanding Series D Preferred was reduced to 2.5% shares were available for purchase. There were no for the twelve month period beginning May 1, 2014. shares purchased during the last three fiscal years. In evaluating the impact of the rate change, the The Company is a party to a management Company determined that the related fair value agreement with Corporate Management Advisors, change was immaterial and that no adjustment was Inc. (“CMA”), a corporation owned by our Chairman required. and Chief Executive Officer. This agreement was On August 1, 2014, the Company redeemed originated in 1991 for the efficient use of management 120,000 shares of Series D Preferred, representing of two public companies at the time. In 1994, one of 50% of the amount outstanding, for an aggregate those public entities, through a merger, no longer price of $6 million plus accrued dividends. In was managed in this manner. Under the terms of the connection therewith, the Company accreted and agreement, CMA provides, subject to the direction charged to retained earnings $89,000 of original and supervision of the Board of Directors of the issuance costs, which was deducted from income Company, (i) senior corporate functions (including available to common shareholders for earnings per supervision of the Company’s financial, legal, share calculation. executive recruitment, internal audit and management On May 1, 2015, the Company and the holders information systems departments) as well as the of the Series D Preferred agreed to extend the 2.5% services of a Chief Executive Officer and Chief annual dividend rate on the outstanding Series D Financial Officer, and (ii) services in connection with Preferred through April 30, 2016. In evaluating the acquisitions, dispositions and financings by the impact of the rate change, the Company determined Company, including identifying and profiling that the related fair value change was immaterial and acquisition candidates, negotiating and structuring that no adjustment was required. potential transactions and arranging financing for any 24 NATIONAL BEVERAGE CORP. such transaction. CMA, through its personnel, also Comprehensive Income (Loss) (“AOCI”) and provides, to the extent possible, the stimulus and reclassified into earnings through cost of sales in the creativity to develop an innovative and dynamic period in which the hedged transaction affects persona for the Company, its products and corporate earnings. The ineffective portion of the change in fair image. In order to fulfill its obligations under the value of our cash flow hedge was immaterial. The management agreement, CMA employs numerous following summarizes the gains (losses) recognized in individuals, whom, acting as a unit, provide the Consolidated Statements of Income and AOCI management, administrative and creative functions relative to the cash flow hedge for Fiscal 2016, Fiscal for the Company. The management agreement 2015 and Fiscal 2014: provides that the Company will pay CMA an annual base fee equal to one percent of the consolidated net sales of the Company, and further provides that the (In thousands) Compensation and Stock Option Committee and the Board of Directors may from time to time award additional incentive compensation to CMA. The Recognized in AOCI: Loss before income taxes Less income tax benefit Fiscal 2016 Fiscal 2015 Fiscal 2014 $ (5,743) $ (3,488) $ (1,059) (393) (1,294) (2,131) Net (3,612) (2,194) (666) Board of Directors on numerous occasions contemplated incentive compensation and, while shareholder value has increased over $2.5 billion (or 6,000%) since the inception of this agreement, no incentive compensation has been paid. We incurred management fees to CMA of $7.0 million for Fiscal Reclassified from AOCI to cost of sales: (Loss) gain before income taxes Less income tax (benefit) provision 2016, $6.5 million for Fiscal 2015 and $6.4 million for Net (6,987) 248 (2,028) (2,592) (4,395) 92 (752) 156 (1,276) Fiscal 2014. Included in accounts payable were Net change to AOCI $ 783 $ (2,350) $ 610 amounts due CMA of $1.8 million at April 30, 2016 and $1.6 million at May 2, 2015. As of April 30, 2016, the notional amount of our outstanding aluminum swap contracts was $14.4 6. DERIVATIVE FINANCIAL INSTRUMENTS million and, assuming no change in the commodity prices, $2.5 million of unrealized loss before tax will From time to time, we enter into aluminum swap be reclassified from AOCI and recognized in earnings contracts to partially mitigate our exposure to over the next 12 months. See Note 1. changes in the cost of aluminum cans. Such financial As of April 30, 2016, the fair value of the derivative instruments are designated and accounted for as a liability was $2.5 million, which was included in cash flow hedge. Accordingly, gains or losses accrued liabilities. As of May 2, 2015, the fair value of attributable to the effective portion of the cash flow the derivative liability and derivative long-term liability hedge are reported in Accumulated Other was $3.0 million and $751,000, which was included NATIONAL BEVERAGE CORP. 25 NATIONAL BEVERAGE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands) 2016 2015 in accrued liabilities and other liabilities, respectively. Such valuation does not entail a significant amount of judgment and the inputs that are significant to the fair Deferred tax assets: Accrued expenses and other value measurement are Level 2 as defined by the fair Inventory and amortizable assets value hierarchy as they are observable market based Total deferred tax assets 6,193 5,698 inputs or unobservable inputs that are corroborated by market data. 7. INCOME TAXES Deferred tax liabilities: Property Intangibles and other 14,049 2,164 14,364 2,231 Total deferred tax liabilities 16,213 16,595 Net deferred tax liabilities $ 10,020 $ 10,897 The provision (benefit) for income taxes consisted of Current deferred tax assets—net $ 4,454 $ 4,348 $ 5,655 538 $ 5,281 417 the following: (In thousands) Current Deferred Total Fiscal 2016 Fiscal 2015 Fiscal 2014 $32,806 (1,299) $24,326 1,076 $19,395 79 $31,507 $25,402 $19,474 Deferred taxes are recorded to give recognition to temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements. Valuation allowances are established to reduce the carrying amounts of deferred tax assets when it is deemed more likely Noncurrent deferred tax liabilities—net $ 14,474 $ 15,245 The reconciliation of the statutory federal income tax rate to our effective tax rate is as follows: Fiscal 2016 Fiscal 2015 Fiscal 2014 Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit Domestic manufacturing deduction benefit Adjustment of unrecognized 2.2 2.3 2.3 (3.0) (3.0) (3.0) (.1) (.1) (.2) (.1) (3.3) (.1) than not that the benefit of deferred tax assets will not be realized. Deferred tax assets and liabilities as tax benefit Other differences of April 30, 2016 and May 2, 2015 consisted of the Effective income tax rate 34.0% 34.0% 30.9% following: During April 2014, the Company reached an agreement with the Internal Revenue Service with respect to its review of the Company’s federal income tax returns for the three years ended April 2013. No material adjustments were proposed and, accordingly, the Company adjusted the related unrecognized tax benefits during the fourth quarter of Fiscal 2014. 26 NATIONAL BEVERAGE CORP. As of April 30, 2016, the gross amount of any particular uncertain tax position, we believe that unrecognized tax benefits was $1.7 million and our unrecognized tax benefits reflect the most $59,000 was recognized as a tax benefit in Fiscal probable outcome. We adjust these unrecognized 2016. If we were to prevail on all uncertain tax tax benefits, as well as the related interest, in light of positions, the net effect would be to reduce our tax changing facts and circumstances. The resolution of expense by approximately $1.2 million. A any particular uncertain tax position could require the reconciliation of the changes in the gross amount of use of cash and an adjustment to our provision for unrecognized tax benefits, which amounts are income taxes in the period of resolution. Federal included in other liabilities in the accompanying income tax returns for fiscal years subsequent to consolidated balance sheets, is as follows: 2013 are subject to examination. Generally, the (In thousands) Beginning balance Increases due to current period tax positions Decreases due to lapse of statute of limitations and audit resolutions Fiscal 2016 Fiscal 2015 Fiscal 2014 $ 1,801 $ 2,123 $ 4,349 145 122 268 income tax returns for the various state jurisdictions are subject to examination for fiscal years ending after fiscal 2010. 8. STOCK-BASED COMPENSATION (268) (444) (2,494)* based program designed to attract and retain Our stock-based compensation program is a broad- Ending balance $ 1,678 $ 1,801 $ 2,123 employees while also aligning employees’ interests * Includes $1,907 related to the Internal Revenue Service review of the Company’s federal income tax returns for the three years ended April 2013 noted above. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of April 30, 2016, unrecognized tax benefits included accrued interest of $227,000, of which approximately $42,000 was recognized as a tax benefit in Fiscal 2016. We file annual income tax returns in the United States and in various state and local jurisdictions. A number of years may elapse before an uncertain tax position, for which we have unrecognized tax benefits, is resolved. While it is often difficult to predict the final outcome or the timing of resolution of with the interests of the shareholders. The 1991 Omnibus Incentive Plan (the “Omnibus Plan”) provides for compensatory awards consisting of (i) stock options or stock awards for up to 4,800,000 shares of common stock, (ii) stock appreciation rights, dividend equivalents, other stock- based awards in amounts up to 4,800,000 shares of common stock and (iii) performance awards consisting of any combination of the above. The Omnibus Plan is designed to provide an incentive to officers and certain other key employees and consultants by making available to them an opportunity to acquire a proprietary interest or to increase such interest in National Beverage. The number of shares or options which may be issued under stock-based awards to an individual is limited NATIONAL BEVERAGE CORP. 27 NATIONAL BEVERAGE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) to 1,680,000 during any year. Awards may be We account for stock options under the fair value granted for no cash consideration or such minimal method of accounting using a Black-Scholes cash consideration as may be required by law. valuation model to estimate the stock option fair value Options generally have an exercise price equal to the at date of grant. The fair value of stock options is fair market value of our common stock on the date of amortized to expense over the vesting period. Stock grant, vest over a five-year period and expire after ten options granted were 3,500 shares in Fiscal 2016, years. 276,800 shares in Fiscal 2015 and 5,245 shares in The Special Stock Option Plan provides for the Fiscal 2014. The weighted average Black-Scholes issuance of stock options to purchase up to an fair value assumptions for stock options granted are aggregate of 1,800,000 shares of common stock. as follows: weighted average expected life of 8.0 Options may be granted for such consideration as years for Fiscal 2016, 7.4 years for Fiscal 2015 and 8 determined by the Board of Directors. The vesting years for Fiscal 2014; weighted average expected schedule and exercise price of these options are tied volatility of 29.0% for Fiscal 2016, 32.8% for Fiscal to the recipient’s ownership level of common stock 2015 and 35.8% for Fiscal 2014; weighted average and the terms generally allow for the reduction in risk free interest rates of 2.1% for Fiscal 2016, 2.2% exercise price upon each vesting period. Also, the for Fiscal 2015 and 1.9% for Fiscal 2014; and Board of Directors authorized the issuance of options expected dividend yield of 3.3% for Fiscal 2016, 4.6% to purchase up to 50,000 shares of common stock for Fiscal 2015 and 4.6% for Fiscal 2014. The to be issued at the direction of the Chairman. expected life of stock options was estimated based The Key Employee Equity Partnership Program on historical experience. The expected volatility was (“KEEP Program”) provides for the granting of stock estimated based on historical stock prices for a options to purchase up to 240,000 shares of common period consistent with the expected life of stock stock to key employees, consultants, directors and options. The risk free interest rate was based on the officers. Participants who purchase shares of stock U.S. Treasury constant maturity interest rate whose in the open market receive grants of stock options term is consistent with the expected life of stock equal to 50% of the number of shares purchased, up options. Forfeitures were estimated based on to a maximum of 6,000 shares in any two-year historical experience and ranged from 0% to 16% for period. Options under the KEEP Program are Fiscal 2016, Fiscal 2015 and Fiscal 2014. forfeited in the event of the sale of shares used to The following is a summary of stock option activity acquire such options. Options are granted at an for Fiscal 2016: initial exercise price of 60% of the purchase price paid for the shares acquired and the exercise price reduces to the stock par value at the end of the six- year vesting period. 28 NATIONAL BEVERAGE CORP. Number of Shares Price(a) Options outstanding, beginning of year Granted Exercised Cancelled 613,135 3,500 (170,715) (27,025) $ 11.23 9.53 4.97 $15.62 Options outstanding, end of year 418,895 $12.44 outstanding as of April 30, 2016 was 6.2 years and $14.4 million, respectively. The weighted average remaining contractual term and the aggregate intrinsic value for options exercisable as of April 30, 2016 was 5.0 years and $6.3 million, respectively. We have a stock purchase plan which provides for the purchase of up to 1,536,000 shares of Options exercisable, end of year 170,056 $ 9.64 common stock by employees who (i) have been (a) Weighted average exercise price. Stock-based compensation expense was $228,000 for Fiscal 2016, $307,000 for Fiscal 2015 and $95,000 for Fiscal 2014. The total fair value of employed for at least two years, (ii) are not part-time employees and (iii) are not owners of five percent or more of our common stock. As of April 30, 2016, no shares have been issued under the plan. shares vested was $652,000 for Fiscal 2016, 9. PENSION PLANS $371,000 for Fiscal 2015 and $90,000 for Fiscal 2014. The total intrinsic value for stock options The Company contributes to certain pension plans exercised was $5,161,000 for Fiscal 2016, $917,000 under collective bargaining agreements and to a for Fiscal 2015 and $76,000 for Fiscal 2014. Net discretionary profit sharing plan. Total contributions cash proceeds from the exercise of stock options (including contributions to multi-employer plans were $848,000 for Fiscal 2016, $228,000 for Fiscal reflected below) were $2.9 million for Fiscal 2016, 2015 and $47,000 for Fiscal 2014. Stock based $2.7 million for Fiscal 2015 and $2.7 million for Fiscal income tax benefits aggregated $1,528,000 for Fiscal 2014. 2016, $240,000 for Fiscal 2015 and $17,000 for Fiscal The Company participates in various multi- 2014. The weighted average fair value for stock employer defined benefit pension plans covering options granted was $20.09 for Fiscal 2016, $8.30 certain employees whose employment is covered for Fiscal 2015 and $12.50 for Fiscal 2014. under collective bargaining agreements. If the As of April 30, 2016, unrecognized compensation Company chooses to stop participating in the multi- expense related to the unvested portion of our stock employer plan or if other employers choose to options was $642,000, which is expected to be withdraw to the extent that a mass withdrawal recognized over a weighted average period of 4.8 occurs, the Company could be required to pay the years. The weighted average remaining contractual plan a withdrawal liability based on the underfunded term and the aggregate intrinsic value for options status of the plan. NATIONAL BEVERAGE CORP. 29 NATIONAL BEVERAGE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Summarized below is certain information regarding the Company’s participation in significant multi- employer pension plans including the financial improvement plan or rehabilitation plan status (“FIP/RP Status”) and the zone status under the Pension Protection Act (“PPA”). The most recent PPA zone status available in Fiscal 2016 and Fiscal 2015 is for the plans’ years ending December 31, 2014 and 2013, respectively. Pension Fund PPA Zone Status Fiscal 2016 Fiscal 2015 FIP/RP Status Surcharge Imposed Central States, Southeast and Southwest Areas Pension Plan (EIN no. 36-6044243) (the “CSSS Fund”) Red Red Implemented Western Conference of Teamsters Pension Trust Fund (EIN no. 91-6145047) (the “WCT Fund”) Green Green Not applicable No No For the plan years ended December 31, 2014 and the subsidiary with a notice of withdrawal liability. December 31, 2013, the Company was not listed in The Company disputes various aspects of the the Form 5500 Annual Returns as providing more withdrawal liability calculations and is challenging than 5% of the total contributions for the above plans. them under applicable Federal laws. The Company The collective bargaining agreements for employees anticipates that the amount of its liability will not have in the CSSS Fund and the WCT Fund expire on a material effect on its financial position or results of October 18, 2016 and May 14, 2016, respectively. operations. The Company is presently negotiating the renewal of the WCT Fund collective bargaining agreement. 10. COMMITMENTS AND CONTINGENCIES The Company’s contributions for all multi- employer pension plans for the last three fiscal years We lease buildings, machinery and equipment under are as follow: (In thousands) Pension Fund CSSS Fund WCT Fund Other multi-employer pension funds Fiscal 2016 $1,172 485 Fiscal 2015 Fiscal 2014 $1,103 637 $1,079 476 various non-cancelable operating lease agreements expiring at various dates through 2026. Certain of these leases contain scheduled rent increases and/ or renewal options. Contractual rent increases are taken into account when calculating the minimum lease payment and recognized on a straight-line 448 306 295 basis over the lease term. Rent expense under Total $2,105 $2,046 $1,850 operating lease agreements totaled $9.2 million for Fiscal 2016, $8.2 million for Fiscal 2015 and $7.9 The trustees of one of the multi-employer pension million for Fiscal 2014. plans that is not considered individually significant have notified a subsidiary of the Company that a mass withdrawal has occurred and have provided 30 NATIONAL BEVERAGE CORP. Our minimum lease payments under non-cancelable up to such guaranteed amount. The Company operating leases as of April 30, 2016 were as follows: expects to have no loss on such guarantee. (In thousands) Fiscal 2017 Fiscal 2018 Fiscal 2019 Fiscal 2020 Fiscal 2021 Thereafter $ 6,376 5,350 4,684 3,968 2,237 3,418 Total minimum lease payments $ 26,033 As of April 30, 2016, we guaranteed the residual value of certain leased equipment in the amount of $4.4 million. If the proceeds from the sale of such equipment are less than the balance required by the lease when the lease terminates on August 1, 2017, the Company shall be required to pay the difference We enter into various agreements with suppliers for the purchase of raw materials, the terms of which may include variable or fixed pricing and minimum purchase quantities. As of April 30, 2016, we had purchase commitments for raw materials of $45.5 million for Fiscal 2017. As of April 30, 2016, we had purchase commitments for plant and equipment of $5.0 million for Fiscal 2017. From time to time, we are a party to various litigation matters and claims arising in the ordinary course of business. We do not expect the ultimate disposition of such matters to have a material adverse effect on our consolidated financial position or results of operations. 11. QUARTERLY FINANCIAL DATA (UNAUDITED) (In thousands, except per share amounts) FISCAL 2016 Net sales Gross profit Net income Earnings per common share—basic Earnings per common share—diluted FISCAL 2015 Net sales Gross profit Net income Earnings per common share—basic Earnings per common share—diluted First Quarter Second Quarter Third Quarter Fourth Quarter $ 185,386 62,899 17,113 .37 .37 $ $ $ 178,678 60,621 15,312 .33 .33 $ $ $ 161,687 52,552 11,236 .24 .24 $ $ $ 179,034 65,365 17,537 .37 .37 $ $ $ 174,637 59,842 15,363 .33 .33 $ $ $ 163,575 57,732 12,958 .28 .28 $ $ $ 143,021 46,090 8,808 .19 .19 $ $ $ 164,592 55,476 12,182 .26 .26 $ $ NATIONAL BEVERAGE CORP. 31 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of National Beverage Corp. We have audited the accompanying consolidated balance sheets of National Beverage Corp. as of April 30, 2016 and May 2, 2015 and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended April 30, 2016. We also have audited National Beverage Corp.’s internal control over financial reporting as of April 30, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. National Beverage Corp.’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Beverage Corp. as of April 30, 2016 and May 2, 2015 and the results of their operations and their cash flows for each of the years in the three-year period ended April 30, 2016, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, National Beverage Corp. maintained, in all material respects, effective internal control over financial reporting as of April 30, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. /s/ RSM US LLP West Palm Beach, Florida July 14, 2016 32 NATIONAL BEVERAGE CORP. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The common stock of National Beverage Corp., dividends were accrued on this amount at an annual par value $.01 per share, (“Common Stock”) is listed rate of 3% through April 30, 2014 and, thereafter, at on The NASDAQ Global Select Market under the an annual rate equal to 370 basis points above the symbol “FIZZ”. The following table shows the range 3-Month LIBOR. Dividends were cumulative and of high and low prices per share of the Common payable quarterly. The net proceeds of $19.7 million Stock for the fiscal quar ters indicated: were used to repay borrowings under the Credit Fiscal Year Ended Company pursuant to the exemption from registration Facilities. The Series D Preferred was issued by the April 30, 2016 Low High May 2, 2015 Low High provided by Section 4(2) of the Securities Act of 1933. On May 2, 2014, the Company redeemed 160,000 shares of Series D Preferred for an aggregate price of $8 million plus accrued dividends. In conjunction with the partial redemption, the annual dividend rate on the outstanding Series D Preferred was reduced to 2.5% for the twelve-month period beginning May 1, 2014. On May 1, 2015, the Company and the holders of the Series D Preferred agreed to extend the 2.5% annual dividend rate on the outstanding Series D Preferred through April 30, 2016. On August 1, 2014, the Company redeemed an additional 120,000 shares of Series D Preferred for an aggregate price of $6 million plus accrued dividends. The final redemption of the remaining 120,000 shares of Series D Preferred was made on April 29, 2016 for an aggregate price of $6 million plus accrued dividends. First Quarter Second Quarter Third Quarter Fourth Quarter $24.94 $38.91 $48.01 $47.00 $19.98 $23.05 $35.50 $32.35 $19.97 $25.50 $27.32 $25.00 $15.42 $17.58 $21.00 $21.00 At July 7, 2016 there were approximately 14,000 holders of our Common Stock, the majority of which hold their shares in the names of various dealers and/or clearing agencies. The Company paid special cash dividends on Common Stock of $118.1 million ($2.55 per share) on December 27, 2012. In April 2012, the Board of Directors authorized an increase in the Company’s Stock Buyback Program from 800,000 to 1.6 million shares of Common Stock. As of April 30, 2016, 502,060 shares were purchased under the program and 1,097,940 shares were available for purchase. There were no shares of Common Stock purchased during the last three fiscal years. On January 25, 2013, the Company sold 400,000 shares of Special Series D Preferred Stock, par value $1 per share (“Series D Preferred”) for an aggregate purchase price of $20 million. Series D Preferred had a liquidation preference of $50 per share and NATIONAL BEVERAGE CORP. 33 PERFORMANCE GRAPH The following graph shows a comparison of the five-year cumulative returns of an investment of $100 cash on April 30, 2011, assuming reinvestment of dividends, in (i) Common Stock, (ii) the NASDAQ Composite Index and (iii) a Company-constructed peer group consisting of Coca-Cola Bottling Company Consolidated and Cott Corporation. Based on the cumulative total return below, an investment in our Common Stock on April 30, 2011 provided a compounded annual return of approximately 31.5% as of April 30, 2016. Comparison of 5-Year Cumula(cid:14)ve Total Return among Na(cid:14)onal Beverage Corp., the NASDAQ Composite Index, and a Peer Group $420 $400 $380 $360 $340 $320 $300 $280 $260 $240 $220 $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 4/30/2011 4/28/2012 4/27/2013 5/3/2014 5/2/2015 4/30/16 Na(cid:29)onal Beverage Corp. NASDAQ Composite-Total Returns Peer Group National Beverage Corp. NASDAQ Composite Peer Group 4/30/11 4/28/12 4/27/13 5/3/14 5/2/15 4/30/16 $100.00 100.00 100.00 $105.46 107.92 81.90 $122.59 116.89 110.40 $161.64 148.92 107.78 $188.65 182.88 133.63 $393.28 176.59 196.56 34 NATIONAL BEVERAGE CORP. Financial Review SUBSIDIARIES BevCo Sales, Inc. Beverage Corporation Intl., Inc. Big Shot Beverages, Inc. Everfresh Beverages, Inc. Faygo Beverages, Inc. LaCroix Sparkling Water, Inc. National Beverage Vending Company National Retail Brands, Inc. NewBevCo, Inc. NutraFizz Products Corp. PACO, Inc. Shasta Beverages, Inc. Shasta Beverages Intl., Inc. Shasta Sales, Inc. Shasta Sweetener Corp. Shasta West, Inc. Sundance Beverage Company FINANCIAL AND OTHER INFORMATION Copies of National Beverage Corp.’s Annual Report, Annual Report on Form 10-K and supplemental quarterly financial data are available free of charge on our website or by contacting our Shareholder Relations department at the Company’s corporate address or at 877-NBC-FIZZ (877-622-3499). Earnings and other financial results, corporate news and other Company information are available on National Beverage’s website at www.nationalbeverage.com. CORPORATE OFFICES 8100 Southwest Tenth Street Fort Lauderdale, FL 33324 954-581-0922 STOCK EXCHANGE LISTING Common Stock is listed on The NASDAQ Global Select Market–symbol FIZZ. ANNUAL MEETING The Annual Meeting of Shareholders will be held on Friday, September 30, 2016 at 2:00 p.m. local time at the Hyatt Regency Orlando International Airport, 9300 Jeff Fuqua Boulevard, Orlando, FL 32827. TRANSFER AGENT AND REGISTRAR Computershare 250 Royall Street Canton, MA 02021 888-313-1476 www.computershare.com/ investor INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM RSM US LLP West Palm Beach, FL CORPORATE DATA DIRECTORS SUBSIDIARY MANAGEMENT Alan A. Chittaro President Faygo Beverages, Inc. Michael J. Bahr Executive Vice President Shasta West James C.T. Bolton Executive Vice President PACO, Inc. Alan D. Domzalski Executive Vice President Sundance Beverage Company James H. Erwin III Executive Vice President–Sales Shasta Beverages, Inc. Stephen E. Flis Executive Vice President Shasta Sweetener, Inc. Arthur D. Hanrehan Executive Vice President National BevPak James M. Jones Executive Vice President Shasta Foodservice John F. Hlebica Vice President Shasta Beverages International Worth B. Shuman III Vice President Military Sales Nick A. Caporella Chairman of the Board & Chief Executive Officer National Beverage Corp. Joseph G. Caporella President National Beverage Corp. Cecil D. Conlee* Founding Partner CGR Advisors Samuel C. Hathorn, Jr.* Retired Chief Executive Officer Trendmaker Development Co. Stanley M. Sheridan* Retired President Faygo Beverages, Inc. *Member Audit Committee CORPORATE MANAGEMENT Nick A. Caporella Chairman of the Board & Chief Executive Officer Joseph G. Caporella President George R. Bracken Executive Vice President–Finance Gregory P. Cook Vice President–Controller & Chief Accounting Officer Timothy C. Barker Executive Director–Strategic IT Brent R. Bott Executive Director– Consumer Marketing Gregory J. Kwederis Executive Director– Beverage Analyst Kenneth A. Finneran Senior Director– Human Resources Dominic H. Angelina Director–Internal Audit Richard S. Berkes Director–Risk Management Glenn G. Bryan Director–Tax Michael M. King Special Corporate Counsel Ballooning Momentum . . . The Healthy Way! - 2 5 % ) ( C C A A R R B B O O N N A A T T E E D D S ODA 2 0 2 0 $ 5 B i l l i o n S S P P A A R R K K L L I I N N G G W A TER Health and fitness are driving CSDs down and sparkling water up across the U.S. 35% of households in the U.S. 35% of households in the U.S. are currently purchasing sparkling water, are currently purchasing sparkling water, 78% bottled water and 94% CSDs 78% bottled water and 94% CSDs Since 1998, the per capita consumption Since 1998, the per capita consumption of CSDs has declined 25% of CSDs has declined 25% (650 oz. drinks vs. 864 oz.) (650 oz. drinks vs. 864 oz.) C S D The average spending on health care The average spending on health care per capita in the U.S. is the highest in per capita in the U.S. is the highest in the world among developing countries the world among developing countries Obesity rates Obesity rates have doubled have doubled among adults among adults in America in America America is experiencing an evolution America is experiencing an evolution away from sugary beverages away from sugary beverages toward healthier options toward healthier options Bottled water sales will surpass Bottled water sales will surpass CSDs for the very first time in 2016 CSDs for the very first time in 2016 U.S. health care costs are projected U.S. health care costs are projected to exceed $4.4 trillion by 2020 to exceed $4.4 trillion by 2020 up from $1.4 trillion in 2000 up from $1.4 trillion in 2000 High blood-sugar levels are now considered an ‘American epidemic’ High blood-sugar levels are now considered an ‘American epidemic’ CSDs - Carbonated Soft Drinks Information from various sources: OECD, CMS, BevNET, Beverage Digest and HHS EXPONENTIALOpportunity outlined in a script to be followed. does not lie in wait Chance is not an option available at wit’s end. Advantage is often just Courage. Excellence is embedded in the character of Sound Principles. Greatness comes only after being Captured. Grand results – without pre-setting one's lens – never come into view. ! Sound character settles: Never Only the truly Blessed – Count Them . . . nac National Beverage Corp. 8100 Southwest Tenth Street, Fort Lauderdale, Florida 33324 954.581.0922 www.nationalbeverage.com 

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